Global markets are reeling under tariff trade war. On Friday, India FM announced many measures to improve sentiment, reduce surcharge on FPIs, provide liquidity and promised to announce further steps in coming weeks. At the same time, China announced retaliatory tariffs on US and US also reacted to it. As a result, today CNY opened quite weak at 7.14 as against Fri close of about 7.085. Clearly political dynamics are driving markets and not economics and Politics is difficult to predict.
Directionally INR could weaken and trail CNY. Levels of 74-75 can not be ruled out.
But at some point, China may also intervene and not let CNY weaken given their strategic intent of internationalization of CNY. Also twists and turns in Trump policies, fiscal deficit of US and stated intent to weaken USD may also work together and weaken USD. At such triggers, INR reversal would start. When would that reversal come, difficult to forecast. Earlier we thought that the plan in markets could be there till mid October. But now looks like it to persist for sometime.
In coming days, few important events to note would be implementation of Bimal Jalan report on transfer of reserves to Government, BREXIT, Indo-Pakistan flare up, shape of HK protest, precarious political situation in Italy etc. Many of variables out there in open.
Levels near 71.70 could be used to cover imports for few weeks via forwards. Alternatively, plain call option could also be used. Export hedging could wait.